Good morning!

Here’s the latest dose of critical metrics and news worth keeping an eye on. There are a few changes today as I’ve updated some graphs and added some extra sections. Let me know what you think.

(Not sure on how to use these metrics in your risk analysis? Read the white paper here and look out for a detailed user’s guide coming in the early New Year.)

Key Metrics

Relative Values (90-Days)

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Trends (21-days)

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Commentary and Evaluation

Brent Crude

Brent Crude is low for this 90-day interval. Overall, prices decreased moderately over the last 21 days but there were some sharper lows before prices settled.

What to Watch

(No change) Russia may retaliate against EU oil sanctions that cap what signatory countries will pay for Russian crude by cutting production. Other OPEC+ countries may join this production cut, driving up prices.

See Reuters for more.

Iron and Steel

Iron and Steel are very high for this 90-day interval. Prices increased moderately, growing steadily over the last 21 days apart from a small dip.

What to Watch

(No change) China’s relaxation of COVID restrictions should allow the country’s construction and manufacturing sectors to swing back into action which would increase the demand for raw materials, increasing demand and prices. However, there is still uncertainty about how effective the COVID easing policies will be meaning that a manufacturing and construction boom in China may be weaker than anticipated.

See Bloomberg for more.

Market Volatility (VIX-US)

Market Volatility (VIX-US) is very low for this 90-day interval. The VIX settled to end relatively flat over the past three weeks, but daily swings have been significant with periods of significantly increased uncertainty.

What to Watch

(No change) The range of conditions facing markets and investors remains significant and complex meaning that it’s unclear what will help ease tensions and reduce volatility. Greater clarity from the Chair of the Federal Reserve will help as will the completion of end-of-year layoffs and staffing cuts. The New Year may allow a market reset where risk and uncertainty have been priced in more effectively, reducing turbulence and volatility.

Wheat

Wheat is low for this 90-day interval. Prices fluctuated moderately over the last 21 days but ended flat.

What to Watch

Despite agreements brokered by Turkey, Russia is still in a position to impose a blockade on Ukrainian grain exports to exert pressure on Kiev and her allies. Moscow could also conduct military operations to disrupt spring planting meaning that prices could rise again next spring and summer.

Read more in AGWeek.

Ocean Freight (FBX)

Ocean Freight (FBX) is very low for this 90-day interval and prices continued their slide, decreasing sharply over the last 21 days. Prices are still above pre-COVID levels but significantly lower than this time last year and appear set to continue their steady reduction.  

What to watch

(No change) China’s easing of COVID restrictions should bring manufacturing levels back up. However, recessionary conditions in many countries, plus the difficulty in raising funds while markets are so unsettled (see VIX above), suggest that demand will not be high enough to place significant demands on supply chains.

Up-to-date shipping data supplied by our friends at Freightos

Other News

Governance

Wells Fargo’s was fined $1.7 billion by US regulators earlier this week and is responsible for an additional $2 billion of damaged due to “illegal activities” and “widespread mismanagement” of over 16 million consumer accounts. These are record-breaking fines, the highest awarded by the US Consumer Financial Protection Bureau (CFPB) and come just six years after the bank’s previous run-in with regulators over an illegal account opening scandal. Read more on CNN

Previously, the bank could have blamed lax governance and poor oversight for its problems, but this latest round of eye-watering fines makes it seem as though the illegal activity at the bank is deliberate and systemic. Moreover, the CFPB is showing that infringements, particularly by “repeat offenders”, will not go unpunished. Finally, the head of the agency noted that the settlement did not provide immunity for individuals which, if any individual lawsuits did follow, would seem to be a major change in the US Government’s approach to financial wrongdoing.

While this is a financial institution, some lessons are broadly applicable:

• Governance and oversight cannot just be check-box exercises to satisfy regulators. These are essential business functions that support and protect the organization.

• Culture is key: turning a blind eye to wrongdoing and brushing off what happened in 2016 must have given employees at every level the impression that the bank tolerated, maybe even encouraged, illicit behavior. Your leadership's actions set the tone for the firm.

• Take punishments seriously. A fine from the government isn’t just a cost of doing business that can be settled before moving on.

• Don’t do dumb, illegal stuff. Because, well, $1.7 billion dollars is a lot.

(Disclosure, I am a disappointed Wells Fargo customer.)

Standards

Some holiday reading arrived in November in the form of the new ISO standard on Crisis Management. This replaces BS 11200 but covers much of the same ground and has a similar structure. Here’s a good summary of the standard by my friend Damon Hunt.

You can get a copy of ISO 22361:2022 Crisis Management — Guidelines here

Random Stat

19 hours, 40 degrees, two seasons.

New York will see a temperature fluctuation of 40°F on Friday. That’s the same as the difference between the seasonal averages for winter (January) and early summer (June).

NYC isn’t alone and cold weather is blasting the whole of the US. According to NOAA “every state in the continental U.S. will experience temperatures below 20 degrees on Christmas Eve”. 

Brrr. Santa’s going to need an extra set of thermals for his North America run this year.

Merry Christmas to everyone who’s celebrating.

Hopefully, you like these changes but please let me know. Hit reply or, even easier, use the poll below!